Weekly Trade Review – 26/04/2015

UK and US GDP Data to Drive the Markets in the Coming Trading Week

Much of the previous week’s forex price action has been driven by remarks from central bank officials and the upcoming week could draw more volatility from these, as a few policy statements are lined up. The first of which is the FOMC interest rate decision, which could contain the Fed’s reaction to the latest set of dismal economic reports from the US economy.

Recall that the US printed a disappointing non-farm payrolls reading for March, ending its impressive streak of hiring gains and following up with weaker than expected results for other medium-tier reports. This has doused hopes that the Fed can be able to tighten monetary policy within the year, although the upcoming FOMC statement should contain more clues on what Yellen and her group of policymakers have in mind.

Another major rate decision coming up this week is that of the Bank of Japan. In the previous week, Governor Kuroda mentioned in his testimony in Parliament that policymakers are starting to discuss the technical details of an exit strategy from their quantitative easing program.

This has been met with a lot of debate, as inflation in Japan has remained weak and data hasn’t been so impressive yet. Some even mentioned that the BOJ can’t afford to reduce liquidity without sparking a surge in bond yields, which could make it more difficult for the government to finance its debt.

Apart from these, other potential market movers for the week include GDP releases from the UK and the US. Weaker than expected growth readings for the first quarter of the year could remind traders that tightening for both these central banks isn’t a done deal yet, which could further undermine their currency strength. Canada is also set to report its monthly GDP reading mid-week and confirm if the BOC no longer needs to cut interest rates to stimulate economic activity again.

Later on in the week, PMI releases from the UK, US and China could also push currency pairs around. If these economies show more signs of a slowdown, risk appetite might take a hit and lead to losses among higher-yielding currencies.

Inflation reports might also prove crucial to forex price action in the coming days, as Japan and the euro zone are gearing up to print their estimates. Take note that national core inflation has been falling for the past seven months and another decline could cast doubts that the BOJ can actually afford to exit their QE program, potentially leading to more losses for the Japanese yen.

Medium-tier reports throughout the week could spark short-term moves also. Japan is set to print its retail sales report and show whether or not consumer spending picked up or not, following months of consecutive declines after the sales tax hike was implemented last year.

Employment reports from Germany and Italy are also due and these might spark some moves for the euro, especially if the reports surprise to the upside and confirm ECB Governor Draghi’s claims that the region is seeing a sustained recovery.

The US core PCE price index, which is rumored to be the Fed’s preferred measure of inflation, is due along with personal spending and income reports. Strong figures could renew optimism in the US economy and revive talks of a Fed rate hike in June or September, depending on how strong the data turns out.

Lastly, the outcome of the Greek debt talks with the Eurogroup officals could also have a longer-term impact on overall market sentiment, as a positive outcome could lift the shared currency and higher-yielding currencies. The lack of an agreement could keep market uncertainties in play and lend support for safe-haven and lower-yielding currencies.

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